Transactions and Regulatory Committee Land Use and Environmental Committee
The following is for study and has NOT been approved by the Transactions and Regulatory, Land Use and Environmental, Legislative Executive Committees or the Board of Directors.
Issue: Should C.A.R. sponsor legislation to statutorily define "cost-effective" energy efficiency improvements?
Options: 1. Sponsor legislation in 2012 2. Take no action 3. Other
Status: The California Energy Commission (CEC), in conjunction with its implementation of AB 758, is considering including societal benefits (i.e., expensive retrofit requirements that yield a nominal increase in efficiency savings deemed to benefit future generations), and costs when determining that an efficiency improvement is "cost-effective". Creating such a broad definition for cost-effective could add thousands of dollars to the cost of purchasing a home if the CEC determines that retrofits at point-of-sale do not unreasonably or unnecessarily affect the home purchasing process. C.A.R. opposes any attempt to impose retrofit requirements at point-of-sale and has historically defined "cost-effective" as any energy efficiency improvement that pays for itself over the useful life of the improvement. Any retrofit that is not cost-effective should never be considered, and those retrofits that are cost-effective should never be required as a condition of sale. Efficiency retrofit requirements that are deemed vital for one segment of the housing supply should be applied to ALL housing and not just those properties that change ownership.
In the final days of session, the Governor introduced a proposal to, among other things; require the Public Utilities Commission (PUC) to establish a standard for cost-effective energy efficiency retrofits. C.A.R. worked to get a statutorily defined definition for "cost-effective" included in the Governor's proposal. As of the posting of this paper, the bill does not include C.A.R.'s language.
Discussion: C.A.R. opposed AB 2678 (Nunez) in 2008, which would have required the CEC to develop a program to impose point-of-sale efficiency audits and upgrades on ALL residential and nonresidential properties. C.A.R. supported AB 2678 after it obtained amendments ensuring that audits and improvements were not required as a condition of sale and instead created a comprehensive statewide campaign of flexible cost-effective efficiency improvements. The bill died in committee. C.A.R. supported AB 758 (Skinner/Bass, enacted 2009), a measure that was similar to the C.A.R. supported version of AB 2678, which tasks the CEC and PUC with creating a comprehensive statewide campaign of flexible cost-effective energy efficiency improvements for existing residential and nonresidential buildings that
will not unreasonably or unnecessarily affect the home purchasing process.
Regulatory implementation - energy efficiency improvements mandated by AB 758. The CEC is currently evaluating multiple implementation strategies for cost-effective energy efficiency ratings, disclosures and retrofits which include a variety of trigger events, including both voluntary and mandatory point-of-sale requirements that do not unreasonably or unnecessarily affect the home purchasing process. By implementing a comprehensive energy efficiency program for residential and nonresidential buildings, the CEC’s hopes to achieve greater energy efficiency in existing structures, especially those structures that fall significantly below the efficiency required by the current California Building Energy Efficiency Standards for new construction.
Current definition for "cost-effective". The Federal Housing Agency's definition for "cost-effective", used in connection with Energy Efficient Mortgage (EEM) financing, requires the total costs of energy efficiency improvements, including maintenance costs, to be less than the total present value of the energy saved over the useful life of the improvement. California does not have a statutory or regulatory definition for cost-effective, however, there was a proposal introduced in the final days of session to require the PUC to establish a standard for what constitutes cost-effective energy efficiency retrofits. Furthermore, the CEC is considering creating a definition for cost-effective that includes "societal benefits" which would permit expensive point-of-sale retrofits if it is determined that the benefit to future generations is more important than the cost of the retrofit, even if the retrofit yields a nominal increase in energy savings.
Creating a statutory definition that "cost-effective" means any energy efficiency improvement pays for itself over the useful life of the improvement avoids an interpretation by the CEC or others that cost-effective includes "societal benefits" (which could make the costs of retrofits prohibitive). A statutory definition as opposed to a regulatory definition requires policy makers to pass legislation to change the definition rather than leaving it to the whims of the regulators.
Who will support a statutory definition of "cost-effective". We anticipate that other associations representing real property and business interests, along with utility companies, consumer organizations and finance entities funding efficiency improvements, will be in strong support of creating a statutory definition for cost-effective. It is plausible that the PUC would support such a definition, seeing as the PUC recently supported legislation to create a similar definition for wholesale energy improvements funded with state programs.
Who will oppose a statutory definition of "cost-effective". It is expected that agencies, (like the California Energy Commission and State Air Resources Board) environmental justice organizations, labor groups, and possibly clean energy business associations will oppose such a definition.
Other considerations. - Is this issue one of great concern to REALTORS®? Should C.A.R. sponsor legislation to create this definition or support other industry efforts to create a definition either in statute or regulation? (For additional information regarding sponsoring legislation, please see, Evaluating Proposals for Sponsored Legislation IBP) - Should the definition for "cost-effective" be consistent for state and federal energy efficiency financing mechanisms (i.e., FHA's Energy Efficient Mortgage)? If so, should the states definition for "cost-effective" be consistent with the definition in federal statute 12USC Sec. 1701z-16, Title 12, Chapter 12(c)(2) that defines "cost-effective" to mean "the total costs of the improvements, including any maintenance costs, is less than the present total value of the energy saved over the useful life of the energy improvement"? - If there are inconsistent definitions for "cost-effective" among state (i.e., California Energy Commission, Public Utilities Commission, State Water Quality Control Board, etc.) and federal (i.e. Federal Housing Agency) agencies, will that create issues for efficiency improvement financing? - Is the definition of "cost-effective" important for establishing energy efficiency standards? If so, should that definition include "societal benefits" which would permit expensive point-of-sale retrofits if the CEC determines that the "benefit" to future generations is more important than the cost of the retrofit? - Regulatory agencies, environmental activists and energy conservation proponents are likely to oppose any statutory definition for “cost-effective”, is this a concern?